Good morning. My name is Thea, and I will be the conference operator today. At this time, I would like to welcome everyone to the VAALCO Energy First Quarter 2018 Earnings Conference Call. (Operator Instructions)

At this time, I would like to turn the conference over to Liz Prochnow, Chief Accounting Officer. Please go ahead.

Thanks, Thea. And on behalf of the management team, I welcome all of you to today's conference call to review VAALCO's first quarter 2018 operating and financial performance.

After I cover the forward-looking statements, Cary Bounds, our Chief Executive Officer, will review key highlights of the first quarter along with operational results. Phil Patman, our Chief Financial Officer, will then provide a more in-depth financial review. Cary will then return for some closing comments before we take your questions.

(Operator Instructions) I would like to point out that we posted an updated investor deck on our website this morning that has additional financial analysis, comparisons and updated guidance that should be helpful.

With that, let me proceed with our forward-looking statement comments. During the course of this conference call, the company will be making forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement. Forward-looking statements are those concerning VAALCO's plans, expectations, future drilling and completion activities, expected capital expenditures, sources of future capital funding and liquidity, future strategic alternatives, proposed evaluations, negotiations with governments and third parties, reserve growth and other operations.

Statements made during this conference call that address activities, events and/or developments that VAALCO expects, believes or anticipates will or may occur in the future are forward-looking statements. These statements are based on assumptions made by VAALCO based on its experience, perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate in the circumstances. Such statements are subject to a number of assumptions, risks and uncertainties, many of which are beyond VAALCO's control.

Investors are cautioned that forward-looking statements are not guarantees of future performance, and thus, actual results or developments may differ materially from those projected in the forward-looking statements. VAALCO disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's press release and in the reports we file with the Securities and Exchange Commission, including the Form 10-Q that was filed yesterday.

Thank you, Liz. Good morning, everyone, and welcome to our first quarter 2018 earnings conference call. I am very pleased with our successful first quarter and the strong financial results we were able to deliver.

With Brent pricing of nearly $70 per barrel in the first quarter, we reported income from continuing operations of $8.7 million or $0.15 per share, which is the highest quarterly earnings since the second quarter of 2014. Just as importantly, we generated adjusted EBITDAX of $14.5 million for the first quarter, an increase of $10.5 million compared to the fourth quarter of 2017.

Production for the fourth quarter averaged 3,611 barrels of oil per day net, which was slightly above our guidance range of 3,400 to 3,600 barrels of oil per day net. We accomplished this despite 2 wells that were shut in during the full quarter as a result of prior year electric submersible pump or ESP failures on the Avouma platform.

Phil will go into more details regarding our financial results, but we paid down $2.1 million in debt and grew cash by $12.5 million to over $32 million as of March 31, 2018.

Now I will spend the next few minutes reviewing our first quarter operational results and expand on recent and near-term operational events. After Phil reviews the financials, I will discuss how we plan to enhance our operations and add shareholder value throughout 2018 and beyond.

In late 2016, VAALCO completed a successful workover campaign and replaced the ESPs in the South Tchibala 2-H and Avouma 2-H wells on the Avouma platform. Following the failure of the South Tchibala 2-H ESP in July 2017, VAALCO began workover operations in October 2017 to replace failed ESPs in the South Tchibala 1-HB and South Tchibala 2-H wells. While production from the South Tchibala 1-HB well was not restored, the workover operation on the South Tchibala 2-H well was successfully completed in November 2017.

Following demobilization of the workover unit in late 2017, the Avouma 2-H well experienced ESP failures, and the well remains temporarily shut in. Rather than immediately replacing the ESPs, we decided to work closely with the original equipment manufacturer and other technical experts to identify the root causes of the ESP failures. The detailed investigations conducted by our experts have revealed that the ESP failures in 2017 are a different type of failure than those experienced in 2016. Our investigations have also revealed that there are multiple factors that could possibly lead to the different types of ESP failures we have experienced.

Based on the results of our analysis in early 2018, we have made changes to the design, installation and operating systems of the ESPs, which we believe will reduce the likelihood of untimely failures in the future. These actions include modifications to the design of the downhole ESP equipment, improvements in the installation procedures and upgrades to the power generation system on the platform.

VAALCO is mobilizing a hydraulic workover unit to the Avouma platform to replace the ESP systems in the Avouma 2-H and the South Tchibala 1-HB wells and restore a total of approximately 750 barrels of oil per day net production from both wells combined before the end of the second quarter of 2018.

We estimate the total cost -- the total net cost to VAALCO for the 2 workovers to be approximately $3.5 million to $4.5 million. We will let the market know when those workovers are complete and when production is restored.

So far, the unexpected ESP failures have been isolated to the Avouma platform as the wells with ESPs on our 3 other platforms have operated without incident for up to 4 years. Taking into account natural production decline and the timing of restoring production from the South Tchibala 1-HB and Avouma 2-H wells, for the second quarter of 2018, we expect our production to be in the range of 3,400 to 3,700 barrels of oil per day net.

Before I turn the call over to Phil to review financial results in more detail, I would like to reiterate our vision and strategy for 2018. We are committed to capturing savings in every aspect of our business and remain focused on maximizing margins and enhancing operational cash flow by minimizing costs and minimizing production decline. We currently do not have any material capital investment plans for 2018, and we will continue to build cash and further strengthen our balance sheet by paying down debt.

As we grow our cash position, we will consider drilling development wells offshore Gabon at Etame in early 2019. And we believe these wells can add production reserves and significant value to the company. These development drilling locations can be easily drilled off our existing platforms with the jackup rig. If successful, they can be placed on production quickly with minimal increase in operating and overhead costs. We continue to have regular discussions with the Gabon government regarding our license extension.

In Angola, we are progressing our discussions to finalize our exit and will update you when we have more information to share.

We believe that pursuing our 2018 strategy will be pivotal to our future, and we are excited about the opportunities that lie ahead for VAALCO.

With that, I will turn the call over to Phil to discuss our financial results.

Thank you, Cary. Good morning, everyone. Our financial results for the first quarter were very strong. We reported our highest quarterly earnings since the second quarter of 2014. VAALCO's income from continuing operations of $8.7 million or $0.15 per share was driven by materially higher sales volumes due to the split lifting that took place during the period from December 31, 2017 to January 1, 2018, and higher realized oil pricing.

Adjusted EBITDAX for the first quarter grew to $14.5 million, more than triple the $3.9 million in adjusted EBITDAX in the fourth quarter of 2017. And our first quarter 2018 operating income was $13.0 million compared with $2.5 million last quarter.

Income from continuing operations, operating income and adjusted EBITDAX were all positively impacted this quarter by higher realized Brent pricing, no commodity hedges in place and the previously mentioned split lifting.

For the first quarter of 2018, our income from continuing operations benefited by $2.8 million or $0.05 per share due to the split lifting. And our fourth quarter 2017 was adversely impacted by $2.4 million or $0.04 per share due to the split lifting.

For the first quarter of 2018, our adjusted EBITDAX benefited by $4.0 million due to the split lifting, and our fourth quarter 2017 was adversely impacted by $3.5 million.

Our Q1 2018 sales were up materially due to the split lifting that occurred at year-end. The normal monthly sales lifting from the floating production facility that stores oil produced in the Etame block was not able to be completed by December 31 due to adverse sea and weather conditions. As a result, the December lifting took place during the period of December 31, 2017 to January 1, 2018, with 53,300 net barrels of oil sold in December and the remaining balance of 95,500 net barrels of oil sold in January 2018, as previously reported.

The company benefited financially from the split lifting. VAALCO's December 2017 pricing was $63.67 per barrel of oil sales, while January's was $68.66.

First quarter oil sales totaled 393,000 net barrels compared with 280,000 net barrels in the fourth quarter of 2017. Our realized oil price for the first quarter of 2018 averaged $68.69 per barrel, up $0.32 -- 32% from $51.99 in the first quarter of 2017 and up 15% from $59.89 in the fourth quarter of 2017.

While VAALCO had several derivative contracts in place for 2017, as of December 31, 2017, VAALCO's crude oil put contracts expired. The company currently has no derivative contracts for 2018 and beyond. With no hedges in place and sustained high Brent pricing, VAALCO was able to generate significant revenues and increased EBITDAX.

Turning to expenses. Total production expense, excluding workovers, for the 2018 first quarter was $10.7 million or $27.17 per barrel of oil of sales compared with $8.1 million or $20.44 per barrel of oil in the same quarter of 2017 and $8.2 million or $29.12 per barrel of oil in the fourth quarter of 2017. Costs per barrel for the fourth quarter of 2017 were impacted by customs, higher FPSO costs and certain regulatory-related costs.

Workover expense during the first quarter totaled $300,000. For the first quarter of 2018, our per BO, barrel of oil, cost was slightly over guidance.

For the second quarter of 2018, we expect production costs, excluding workovers, to be between $27 and $30 and maintain our expectation for the full year of 2018 to average between $24 and $28 per barrel of oil. We continue to expect workover costs for the 2 Avouma platform workovers in the first half of 2018, that Cary discussed, to total $3.5 million to $4.5 million.

DD&A for the first quarter of 2018 was $1.1 million or $2.86 per barrel of oil. This compares to $1.9 million or $4.74 per barrel of oil in the 2017 first quarter and $0.9 million or $3.28 per barrel of oil in the fourth quarter of 2017.

DD&A per barrel decreased due to the increase in proved reserves at December 31, 2017, that we discussed in our last call. For the second quarter and full year 2018, we continue to expect our DD&A rate to be in the range of $3 to $4 per barrel of oil, recognizing the reserve increase.

General and administrative expenses for the first quarter of 2018 were $2.6 million or $6.62 per barrel of oil compared to $3.1 million or $7.94 per barrel of oil recorded in the same period 1 year ago and $1.7 million or $6.15 per barrel of oil in the fourth quarter of 2017. These G&A costs include noncash compensation expense totaling $0.3 million in the first quarter of 2018, $0.2 million in the same quarter in 2017 and $0.2 million in the fourth quarter of 2017. For the full year 2018, we still estimate our cash G&A to total $9 million to $11 million and our noncash G&A to be $1 million to $2 million.

Income tax expense for the first quarter of 2018 was $4.0 million compared to $3.2 million for the same period in 2017 and $1.3 million in the fourth quarter of 2017. The increase in income tax expense in the first quarter of 2018 as compared to the fourth quarter of 2017 is in part attributable to higher revenues in Gabon. Also, due to the Tax Cuts and Jobs Act enacted in December 2017, a $1.3 million income tax benefit associated with the reversal of the valuation allowance related to alternative minimum tax credits was recorded during the fourth quarter of 2017.

As detailed on Slide 7 in our presentation deck posted this morning on our website, we currently estimate that our operational breakeven price in 2018 is approximately $34 per barrel of oil sales, and our free cash flow breakeven price in 2018 is approximately $44 per barrel of oil sales, both figures including currently projected workover expense.

In the first quarter, our realized price was nearly $70, and we were able to generate significant free cash flow. As you can see on the slide, at $75 realized prices, we would realize $34.40 per barrel in operational margin and $25.80 per barrel in free cash flow. In general terms, we estimate that each $5 increase in realized oil prices also increases our annual cash flow by $6 million, which clearly shows our strong leverage to higher oil prices.

Turning to the balance sheet. During the first quarter, VAALCO reduced its debt by $2.1 million and grew cash by $12.5 million. Cash and cash equivalents totaled $32.2 million as of March 31, 2018. Notably, this cash balance included $4.8 million of cash attributable to nonoperating partner advances.

Working capital from continuing operations increased by $7.9 million, which contributed to the increase in cash and cash equivalents. At March 31, debt net of deferred financing costs totaled $7.0 million, of which $5.8 million was current. We currently plan to pay down all of our debt by the end of this year.

Thanks, Phil. With Brent trading at multiyear highs, no hedges in place, we anticipate further meaningful growth in our cash position. Already in 2018, we have grown our unrestricted cash significantly above our year-end 2017 balance of $19.7 million to $27.4 million net of partner advances. We also paid down our debt by $2.1 million.

As we continue to deliver on our guidance and strengthen our balance sheet, we remain confident in our premier Etame asset. As I mentioned earlier, we have several development drilling opportunities at Etame that we are considering drilling early next year, depending on approvals from the Gabon government and our partners.

I am proud of the management, technical and financial team we have here at VAALCO and their commitment and dedication to our company. We will continue to execute on our strategy, and I am optimistic that we will create substantial value for our shareholders in 2018 by enhancing our operations and improving our balance sheet.

I have a group of questions. First of all, we talk about the wells that you have the H2S trouble with. What price makes those economical to go back and do the capital equipment upgrades so that you can produce those wells?

Right, Bill. Thanks for the question. Those wells are really in the Ebouri field. We have one well producing in the Ebouri field that -- where we can manage the H2S content. Then there are 2 other wells that are shut in due to high H2S content. It will take significant capital to install the facilities required to strip H2S. And -- but we're continuously looking at optimizing that capital investment, and I would say that the investment really doesn't achieve the return we want at current pricing. And as we do our analysis, I can get back to you with exactly what pricing makes the H2S stripping work and the installation, the capital investment for H2S stripping facilities. But where we are today, we have better opportunities drilling development wells is what I would say. We would -- if we have a portfolio of opportunities, the better investments in our portfolio are really development wells versus H2S stripping facilities.

The wells at Etame are highly profitable even at much lower oil prices. And so really, what's made drilling -- the possibility that we have today is the buildup in cash and the ability to fund the drilling. So the timing is right. We've held off, and we -- if things work out as planned, these wells will come on at peak oil prices and rather than a couple of years ago with lower oil prices. And so that's a good thing. But these wells are very, very prolific, and they do achieve a return even at lower oil prices. Again, what's driving our appetite is not only the wells that are available but the cash we've generated and the ability to fund the wells.

Well, we've had a lot of conversations internally about what happened and what went on, and I have to commend our operations team. It was no downtime basically. We kept the field operating and running -- up and running much -- at a much higher rate than we anticipated. So we always -- when we do a forecast, we always build in some downtime. We face challenges every day. The operations team faces challenges every day, and there is unexpected interruptions in production. And we just didn't see as much of those interruptions in the first quarter as we expected. So I'd commend our operations team. There was no -- to get to your -- maybe to more clearly answer your question, Bill, there was no significant -- one significant event that led to the -- beating guidance. It was, again, a whole lot of work on all the wells by our operations team.

Don Cussen here. I heard what you were saying earlier, and I think it's consistent with some prior press releases and conference calls you had, that the 2 wells that are down, you anticipate being on by the end of second quarter. I don't know if I got this, and if you did mention it, I apologize for asking, but is the workover rig actually on site, working now?

What we're doing is we're mobilizing the workover rig right now. Obviously, there's a lot of equipment that needs to be transported from our shore base out to the platform. So we're in the process right now of mobilizing that equipment. We expect to initiate the workovers or start the workovers late this week, early next week. So over the weekend is our best estimate, but we'll -- we will issue a press release when we initiate the activity.

Yes, Don. The free cash flow breakeven is $44 per barrel. What has changed from prior forecasts is we have included our projected workover costs in the calculation. Previously, we presented figures that excluded workover costs.

Sure, Bill. There's really nothing that we can report right now in terms of results of the conversations we're having with the Angolan officials. But we are having routine conversations with Angola, and like we've said in the past, we think we can significantly reduce the penalty for not drilling 3 obligation wells in Angola. Those 3 wells were supposed to be drilled by November 2017. That did not happen, but we do feel like we have a strong case to reduce that penalty significantly. We are in the midst of discussions with Angola, and there's nothing to report today.

Right. Again, Equatorial Guinea is -- we have the license there with the discovery and exploration opportunities on the block. And so we're constantly reviewing the cost to develop the discovery and looking at that opportunity in our portfolio. And as soon as we decide that the investment is -- ranks at the top of our portfolio, we will move ahead. Right now, there are no plans to move ahead with the development in EG, but it is still an opportunity for us, and we are evaluating it routinely.

And are there things that the governmental authorities there could do to make your return on investment better such that you would accelerate your drilling there? Or the opportunity simply so good offshore Gabon that unless someone were to drop a whole lot of money in your lap, it's going to be on hold for a while?

Right, right. There are things that could improve in Equatorial Guinea, could improve our economics. And so we are in constant communication with our partner. Well, we have multiple partners. Our primary partner is the state oil company, GEPetrol. And so we are in discussions with them on how we can move forward and improve the economics of the partnership. And so yes, there are some things we can do. Nothing to report right now, but we are considering what we can -- how the government can enhance the economics in Equatorial Guinea. But I -- right now, we think that -- or we see -- or in -- based on our evaluation, the opportunities in Gabon present a better return.

That's helpful. And then I would like to switch to, I guess, I'll call it your ongoing quiet commentary about additional properties that you would be evaluating in West Africa and/or accretive acquisitions. Bring us up to speed as to your thought process and then what you may or may not be doing on the discussion front with other parties here, please.

Well, we're constantly looking at opportunities for acquisitions. And our focus, I guess, ideally -- and I've said this in the past, ideally, an acquisition would be a property where we can use our existing resources. And when I say resources, I mean, our technical team and our operational team. So we're constantly looking for an acquisition where we can put the team we have in place to work and not increase overhead significantly but create value. There's nothing to report other than it's still an active ongoing process.

Well, actually, the higher oil prices really haven't changed our level of activity as much as it has opened up, I guess, more opportunities that we probably wouldn't have considered in the past, we would consider now. But we -- there -- we constantly have people coming to us with opportunities. And I can't really quantify how many per week or per month or anything like that, but we do have more flexibility with an improved balance sheet and more cash. And we are seeing opportunities, and people are bringing opportunities to us.